The stock market will crash again. The exact time of occurrence is beyond my ability to predict, but the fact that it will happen at some point is almost certain, just like you can make an investment. If you are worried about this situation and its impact on your family, you are not alone. You should use worry as a sign to show that you are not fully prepared for the impact that the collapse will have on your finances and plans.
With the right plan, financial structure, and the right perspective, you only need to worry about the market crash. As long as capitalism itself remains intact, market crashes often bring seeds of rebirth, such as how the bursting dot.com bubble laid the foundation for today̵
1. You don’t need to invest money immediately
It is precisely because the market may collapse that the funds that will be spent in the next few years should not be invested in stocks. The last thing you want to happen is to be forced to sell more than the expected amount of stock to pay the bills that are due. If you encounter this situation, you will find that less funds are involved in subsequent recovery, thereby reducing your final wealth.
Instead, the funds you need for the next few years should be deposited in savings or money market accounts, CDs, or maturity-matched US Treasury or investment grade bond ladders. You won’t use this money to get high returns, but you have a greater chance of saving the money you need when you need it. Just know the money you need when you need it. This is a good way to get rid of the market’s SW trend.
2. You did not use the margin
In a strong market, using margin can expand your returns and make you feel like an investment genius. However, when things get sour, the amplification effect is not good for you. Not only that, your broker also has the right to change the terms of your margin agreement at any time for any reason. Usually, this means making it more restrictive when the market goes down, which will bring you more profit challenges than ever before.
If you do not use margin, no matter what the market does, you cannot be forced to exit the position just because the stock price drops.This makes it easier for both of you to pass the crash with As the market rebounds, keep investing.
3. Just in case, you have been taken away.
When the market crashes, one of the challenges you may face is that there are usually sufficient economic reasons to push the market down. After all, the pricing of stocks is based on expectations of the prospects of related companies. If these prospects deteriorate, their stock prices should be reflected quickly. Most importantly, if a company expects slower growth or aggressive contraction, it may eventually reduce the number of jobs it has, leading to layoffs.
With an emergency fund of approximately three to six months of expenditure, you can prepare for a temporary interruption of income flow. If your job begins to feel insecure, this can help you reduce the temptation to withdraw your money from the market and provide you with some breathing space when you are unemployed.
4. Your dividend is still paying
Although the market price is determined based on the company’s future prospects, the company usually pays dividends to shareholders based on the actual cash it generates today. If a company can maintain and pay dividends even if its stock price drops, it usually indicates that its leadership believes that any challenge will be short-lived and its core position remains strong.
Most importantly, dividends are usually in the form of cash. This cash is the money you can use to support the emergency fund, pay part of the expenses or reinvest in the market. Dividends during a bear market can be an important source of investment because they represent the cash already in your account, which you can use without selling stocks or absorbing new funds.
5. You recognize that your shares are ownership shares of the company
Shares are just part of the company’s equity. When you own stocks, you are actually part of the business. The market pricing of these stocks has little impact on the company’s operations, profitability or dividend payout ability.
If you really like a company that buys its shares for $100 during a bull market, then why would you not be more excited about buying its shares for $40 during a bear market? As long as its business remains stable and the prospects are good, a market crash can give you the opportunity to buy more stocks with the same cash expenditure. This is one of Warren Buffett’s most successful strategies, and it is also a strategy that is available to mortals as well as the Oracle of Omaha.
Prepare for the next market crash
The market always fluctuates up and down. If your financial life is built around the assumption that the stock market will only rise, you have every reason to worry about the next market crash. On the other hand, if you make a plan based on the above factors, you will be in a better position to survive the next market crash and appear in a better position on the other end.
Market collapse can still be frightening, but if you are fully prepared for it, there will be far fewer reasons to worry.